Gibson, Business Law 11^th Edition

Chapter 5: Terms of the Contract

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1. Which of the following statements is incorrect?

1. The difference between a representation and a term depends on the intention of the parties.
2. The test to distinguish a representation from a term is an objective one.
3. A representation that induces a party to enter a contract will be a term.
4. A representation that is not a term is not actionable in contract law.

Difficulty: Complex

Topic: Express terms

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 5.1 Identify terms in a contract and distinguish them from a representation.

2. Which of the following is true regarding the proximity between a statement and a contract?

1. The closer the making of a statement and the final agreement, the more likely it was intended as part of the contract.
2. Where an oral statement is made in the negotiations leading to a final agreement, the courts will consider this statement as a term of the contract.
3. The length of time between oral statements and final agreements are considered irrelevant to the courts as long as they were heard by both parties.
4. The longer the time between making a statement and the final agreement, the more likely it was intended as part of the contract.

Difficulty: Moderate

Topic: Express terms

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 5.1 Identify terms in a contract and distinguish them from a representation.

1. Referring to the case of Oscar Chess v Williams [1957] 1 All ER 325, what was the reason for the court’s decision?
2. The statement was a term.
3. The plaintiff buyer had special skills or knowledge in relation to the subject matter.
4. Neither party was in a position to know the truth.
5. The defendant seller had special skills or knowledge in relation to the subject matter.

Difficulty: Moderate

Topic: Express terms

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 5.1 Identify terms in a contract and distinguish them from a representation.

True/False: Identify whether the statement is True or False.

1. The importance placed on a statement by the parties determines whether a statement is a term or a representation.
2. True
3. False

Difficulty: Basic

Topic: Express terms

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.1 Identify terms in a contract and distinguish them from a representation.

1. If one of the parties had a specific skill or knowledge with regard to the subject matter of the contract, then a statement is probably a term.
   1. True
   2. False

Difficulty: Basic

Topic: Express terms

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.1 Identify terms in a contract and distinguish them from a representation.

1. Explain how the courts decide between a mere representation and a term.

Difficulty: Basic

Topic: Express terms

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 5.1 Identify terms in a contract and distinguish them from a representation.

• the time lapse between the making of the statement and the final agreement;
• whether the person making the statement asks the other person to check or verify it;
• whether the statement was made with the intention of preventing the other party from finding any defects (Hopkins v Tanqueray [1854]);
• the importance attached to the statement by the parties;
• whether the person who has made the representation has some special skill or knowledge not possessed by the other party (Oscar Chess v Williams [1957]).

1. What is the court’s rationale for distinguishing between ‘representations’ and ‘terms’? Do you agree with this rationale?

Difficulty: Complex

Topic: Express terms

Standard/Graduate Attribute AACSB: Reflective thinking

Learning Outcome: LO 5.1 Identify terms in a contract and distinguish them from a representation.

1. In the case of Oscar Chess v Williams [1957] 1 All ER 325, do you agree that the statements of the party with specialist skills or expert knowledge should always be classed as a term?

Difficulty: Moderate

Topic: Express terms

Standard/Graduate Attribute AACSB: Reflective thinking

Learning Outcome: LO 5.1 Identify terms in a contract and distinguish them from a representation.

1. Which of the following statements best supports the ‘parol evidence rule’?
   1. A court will take into account evidence of the actions and words of the parties in order to ascertain the details of a written agreement.
   2. A court will not admit evidence of the actions and words of the parties that add to, vary or contradict a written agreement.
   3. A court will take into account evidence of the actions and words of the parties in order to ascertain the details of an oral agreement.
   4. A court will not admit evidence of the actions and words of the parties that add to, vary or contradict an oral agreement.

Difficulty: Complex

Topic: Parol evidence rule

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.2 Discuss the parol evidence rule and the number of qualifications subject to it.

1. Which of the following strategies can exempt a party from the ‘four corners’ rule of a contract intended to be wholly in writing?
2. A party can record oral statements of the parties prior to the execution of the contract.
3. A party can include a ‘no misrepresentation clause’ in the contract.
4. A party can submit statements made after the contract had been finalized.
5. A party can include a form of ‘boilerplate’ clause at the end of the contract.

Difficulty: Complex

Topic: Parol evidence rule

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 5.2 Discuss the parol evidence rule and the number of qualifications subject to it.

1. In the case of a written contract, the courts assume that the intention of the parties is contained within the ‘four corners’ of the contract.
2. True
3. False

Difficulty: Basic

Topic: Parol evidence rule

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.2 Discuss the parol evidence rule and the number of qualifications subject to it.

The ‘parol evidence rule’ exists to exclude all forms of oral evidence agreements that took place before or while the agreement was being finalised.

1. True
2. False

Difficulty: Moderate

Topic: Parol evidence rule

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.2 Discuss the parol evidence rule and the number of qualifications subject to it.

1. What do you think the term ‘within the four corners’ of a contract refer to?

Difficulty: Moderate

Topic: Parol evidence rule

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.2 Discuss the parol evidence rule and the number of qualifications subject to it.

1. What was the reason for the court’s decision in the case of Van Den Esschert v Chappell [1960] WAR 114?
   1. The seller’s oral statement was regarded as a collateral contract.
   2. The seller’s oral statement was inconsistent with the terms of the written agreement.
   3. The seller’s oral statement was truthful.
   4. The seller’s oral statement was ambiguous.

Difficulty: Moderate

Topic: Collateral contracts

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.3 Identify a collateral contract and explain the significance of its contractual effect.

1. Which of the following is necessary for a pre-contractual statement to be enforceable as a collateral contract?
   1. The pre-contractual statement is truthful and representational.
   2. The pre-contractual statement is not a term of the written contract.
   3. The pre-contractual statement is consistent with the written contract.
   4. The pre-contractual statement is in writing.

Difficulty: Moderate

Topic: Collateral contracts

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.3 Identify a collateral contract and explain the significance of its contractual effect.

1. In J J Savage and Sons Pty Ltd v Blakney (1970) 44 ALJR 123, why was the oral statement found to be representational rather than promissory?
   1. The oral statement was inconsistent with the terms of the main contract.
   2. The oral statement was separate from the main contract.
   3. The oral statement was made in writing to the plaintiff.
   4. The oral statement was consistent with the terms of the written agreement.

Difficulty: Complex

Topic: Collateral contracts

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.3 Identify a collateral contract and explain the significance of its contractual effect.

1. What was the reason for the decision in the case of Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133?
   1. The oral statement was promissory and therefore enforceable as a collateral contract.
   2. The oral statement was representational rather than promissory.
   3. The oral statement was intended to form part of the agreement between the parties.
   4. The oral statement was inconsistent with the terms of the written document.

Difficulty: Complex

Topic: Collateral contracts

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.3 Identify a collateral contract and explain the significance of its contractual effect.

1. In order to establish that a collateral contract exists, it is necessary to show that the person making the statement intended it to be acted upon and that the person to whom the statement was made relied upon the statement.
   1. True
   2. False

Difficulty: Basic

Topic: Collateral contracts

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.3 Identify a collateral contract and explain the significance of its contractual effect.

1. If a collateral contract is inconsistent with an exclusion clause in the main contract, the collateral contract will prevail.
   1. True
   2. False

Difficulty: Basic

Topic: Collateral contracts

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.3 Identify a collateral contract and explain the significance of its contractual effect.

1. Explain what a pre-contractual statement is?

Difficulty: Basic

Topic: Collateral contracts

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.3 Identify a collateral contract and explain the significance of its contractual effect.

• Statements which were not intended to be taken seriously and are referred to as small or sales talk.
• Representations or factual statements which were made to induce a party into entering into a contract.
• An express term of a contract.

1. Which one of the following best illustrates the difference between a condition and a warranty?
   1. A warranty is considered an extremely important term of a contract, while a condition is a less important term.
   2. A breach of a condition enables an injured party to terminate a contract and seek compensation, whereas a breach of a warranty results in a remedy of damages.
   3. A breach of a warranty enables an injured party to reject a contract, whereas a breach of a condition enables the injured party to claim for damages.
   4. A condition and a warranty are both terms of a contract, however the condition is often considered to be a promise by one of the parties.

Difficulty: Moderate

Topic: Importance of terms

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.4 Recognise the importance of different terms, and identify conditions, warranties and statutory consumer guarantees.

1. Which of the following statements is the best description of an ‘innominate term’?
   1. A term in a contract, non-performance of which may result in rescission of the contract and/or damages to the plaintiff.
   2. A term in a contract not essential to the main purpose of the contract, non-performance of which will not entitle the plaintiff to rescind the contract.
   3. A term in a contract which cannot be classified until after the breach has occurred and the seriousness of the effects of the breach can be ascertained.
   4. A term in a contract which provides that the contract will terminate on the happening of a particular event.

Difficulty: Basic

Topic: Importance of terms

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.4 Recognise the importance of different terms, and identify conditions, warranties and statutory consumer guarantees.

1. In which of the following cases did the court decide that the term which had been breached was a condition and not a warranty?
   1. Poussard v Spiers & Bond (1876) 1 QBD 410.
   2. Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd (1962) 2 QB 26.
   3. Bettini v Gye (1876) 1 QBD 183.
   4. Associated Newspapers Ltd v Bancks (1951) 83 CLR 322.

Difficulty: Moderate

Topic: Importance of terms

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.4 Recognise the importance of different terms, and identify conditions, warranties and statutory consumer guarantees.

1. What was the reasoning behind the court’s decision in Poussard v Spiers & Bond (1876) 1 QBD 410?
   1. The term was an innominate term, and the breach was not serious enough to entitle the other party to repudiate.
   2. The term which had been breached was a warranty because it was subsidiary to the main purpose of the contract.
   3. The term which had been breached was a condition because the breach had a serious effect on the contract.
   4. The term which had been breached was a condition because the term was essential to the contract and the other party would not have entered into the contract without it.

Difficulty: Complex

Topic: Importance of terms

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 5.4 Recognise the importance of different terms, and identify conditions, warranties and statutory consumer guarantees.

1. Why was the plaintiff successful in the case of Bettini v Gye (1876) 1 QBD 183?
   1. The term was an innominate term, and the breach was not serious enough to entitle the other party to repudiate.
   2. The term which had been breached was a warranty because it was subsidiary to the main purpose of the contract.
   3. The term which had been breached was a condition because the breach had a serious effect on the contract.
   4. The term which had been breached was a condition because the term was essential to the contract and the other party would not have entered into the contract without it.

Difficulty: Complex

Topic: Importance of terms

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 5.4 Recognise the importance of different terms, and identify conditions, warranties and statutory consumer guarantees.

1. Why did the courts find in favour of the plaintiff in Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd (1962) 2 QB 26?
   1. The term was an innominate term, and the breach was not serious enough to entitle the other party to repudiate.
   2. The term which had been breached was a warranty because it was subsidiary to the main purpose of the contract.
   3. The term which had been breached was a condition because the breach had a serious effect on the contract.
   4. The term which had been breached was a condition because the term was essential to the contract and the other party would not have entered into the contract without it.

Difficulty: Complex

Topic: Importance of terms

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 5.4 Recognise the importance of different terms, and identify conditions, warranties and statutory consumer guarantees.

1. Which of the following is a remedy for breach of the consumer guarantees under the Australian Consumer Law, except?
   1. Damages in the case of a major failure that cannot be remedied.
   2. Damages for breach of conditions implied into the contract.
   3. An appropriate remedy for any breach that is not a major failure.
   4. Refund or replacement of goods for any breach that is a major failure.

Difficulty: Moderate

Topic: Importance of terms

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.4 Recognise the importance of different terms, and identify conditions, warranties and statutory consumer guarantees.

1. Which of the following is NOT an example of a condition precedent?
   1. A contract for the sale of a block of land which is subject to the purchaser obtaining development consent from the local council.
   2. A contract for the sale of a house which is subject to a right to terminate if the vendors are unable to purchase another property by the settlement date.
   3. A contract for the sale of a house which is subject to the vendors completing the purchase of another property.
   4. A contract for the sale of land which is subject to the vendor obtaining development consent from the local council.

Difficulty: Complex

Topic: Importance of terms

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 5.4 Recognise the importance of different terms, and identify conditions, warranties and statutory consumer guarantees.

1. In Head v Tattersall (1871) LR 7 EXCH 7, which contract clause supported the plaintiff’s case?
   1. A term in a contract not essential to the main purpose of the contract, non-performance of which will not entitle the plaintiff to rescind the contract.
   2. A term in a contract which provides that the contract will terminate on the happening of a particular event.
   3. A term which must be satisfied before a contract can come into existence.
   4. A term in a contract, the consequences of breach of which cannot be determined until after the breach has occurred and the seriousness of the effects of the breach can be ascertained.

Difficulty: Moderate

Topic: Importance of terms

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.4 Recognise the importance of different terms, and identify conditions, warranties and statutory consumer guarantees.

1. The court’s decision in Pym v Campbell (1856), 119 ER 903, is an example of:
   1. A condition subsequent.
   2. A condition consequent.
   3. A condition precedent.
   4. A condition antecedent.

Difficulty: Moderate

Topic: Importance of terms

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.4 Recognise the importance of different terms, and identify conditions, warranties and statutory consumer guarantees.

1. When there is a breach of a condition, the only available remedy is to sue for damages.
   1. True
   2. False

Difficulty: Basic

Topic: Importance of terms

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.4 Recognise the importance of different terms, and identify conditions, warranties and statutory consumer guarantees.

1. An intermediate or innominate term is neither a condition nor a warranty.
   1. True
   2. False

Difficulty: Basic

Topic: Importance of terms

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.4 Recognise the importance of different terms, and identify conditions, warranties and statutory consumer guarantees.

1. The Australian Consumer Law creates guarantees that safeguard the rights of consumers of purchases above $40,000.00 per annum.
   1. True
   2. False

Difficulty: Basic

Topic: Importance of terms

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.4 Recognise the importance of different terms, and identify conditions, warranties and statutory consumer guarantees.

1. In Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503, the court’s decision to interpret the parties’ intentions and enforce the contract was based upon:
   1. A meaningless term.
   2. An ambiguous term.
   3. A trade custom term.
   4. An uncertain term.

Difficulty: Complex

Topic: Implied terms

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 5.5 Explain the types of terms implied into a contract.

1. Why did the court imply a term into the contract in The Moorcock (1889) 14 PD 64?
   1. Because the practice was so well known it was understood to be included in every contract.
   2. To sever a meaningless term and save the rest of the contract.
   3. Because of prior dealings between the parties.
   4. To overcome an omission and give effect to the intention of the parties.

Difficulty: Moderate

Topic: Implied terms

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 5.5 Explain the types of terms implied into a contract.

1. Which of the following is NOT a reason a court will imply a term into a contract?
   1. That the term follows a well-known trade custom in a particular industry.
   2. That by implying the term it would cure an obvious omission and give the contract business efficacy.
   3. The term is required by statute.
   4. That by implying the term it would make a fairer bargain.

Difficulty: Basic

Topic: Implied terms

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.5 Explain the types of terms implied into a contract.

1. When deciding on the terms of a contract, the courts will only imply into an existing contract, a term without which the contract would not exist.
   1. True
   2. False

Difficulty: Moderate

Topic: Implied terms

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.5 Explain the types of terms implied into a contract.

1. A contract cannot be enforced if it contains uncertain or meaningless terms.
   1. True
   2. False

Difficulty: Moderate

Topic: Implied terms

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.5 Explain the types of terms implied into a contract.

1. What are the implications of including uncertain terms within a contract?

Difficulty: Basic

Topic: Implied terms

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.5 Explain the types of terms implied into a contract.

1. What do you think a ‘commonsense approach’ in contract law, refers to?

Difficulty: Moderate

Topic: Implied terms

Standard/Graduate Attribute AACSB: Reflective thinking

Learning Outcome: LO 5.5 Explain the types of terms implied into a contract.

1. Why was the plaintiff bound by the exclusion clause in the case of L’Estrange v Graucob Ltd (1934) 2 KB 394?
   1. Because the clause applied to the damage that occurred.
   2. Because the clause was explained to them.
   3. Because the clause was contained in a written document signed by the plaintiff.
   4. Because of previous dealings between the parties.

Difficulty: Moderate

Topic: Exclusion clauses and terms

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 5.6 Describe exclusion clauses, the approaches to their interpretation and the statutory protection available to consumers.

1. A party may include a clause into a contract in an attempt to minimise or relieve some or all of their liability. This type of clause is called an:
   1. Exception clause.
   2. Exclusive clause.
   3. Inception clause.
   4. Elimination clause.

Difficulty: Basic

Topic: Exclusion clauses and terms

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.6 Describe exclusion clauses, the approaches to their interpretation and the statutory protection available to consumers.

1. Why was the dry-cleaning company held to be liable in Curtis v Chemical Cleaning & Dyeing Co (1951) 1 KB 805?
   1. Because the contract so provided.
   2. Because the exemption clause in the contract was illegal.
   3. Because exemption clauses are not enforceable.
   4. Because the purpose of the exemption clause in the contract was misrepresented by the shop assistant.

Difficulty: Basic

Topic: Exclusion clauses and terms

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 5.6 Describe exclusion clauses, the approaches to their interpretation and the statutory protection available to consumers.

1. Why was the exclusion clause in The Council of the City of Sydney v West (1965) 114 CLR 481 found to be ineffective?
   1. The exclusion clause was not worded correctly.
   2. The clause did not support the parties’ original intention.
   3. The exclusion cause only applied to negligent acts.
   4. The breach was outside the terms of the contract.

Difficulty: Complex

Topic: Exclusion clauses and terms

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 5.6 Describe exclusion clauses, the approaches to their interpretation and the statutory protection available to consumers.

1. Which of the following is NOT an approach to interpretation of an exclusion clause?
   1. An exclusion clause will be strictly construed against the party relying on it.
   2. An exclusion clause will not apply if it produces harsh consequences.
   3. An exclusion clause will not apply to actions outside the contract.
   4. An exclusion clause will be interpreted by construction of the contract as a whole.

Difficulty: Moderate

Topic: Exclusion clauses and terms

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.6 Describe exclusion clauses, the approaches to their interpretation and the statutory protection available to consumers.

1. If a document containing an exclusion clause is not signed, the clause will not apply.
   1. True
   2. False

Difficulty: Moderate

Topic: Exclusion clauses and terms

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.6 Describe exclusion clauses, the approaches to their interpretation and the statutory protection available to consumers.

1. Parties can protect themselves by using exclusion clauses as long as the clause is included in the contract itself and it does not deviate from the contract.
   1. True
   2. False

Difficulty: Moderate

Topic: Exclusion clauses and terms

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.6 Describe exclusion clauses, the approaches to their interpretation and the statutory protection available to consumers.

1. In order for a party to rely on an exclusion clause in a contract, what must they show?

Difficulty: Basic

Topic: Exclusion clauses and terms

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 5.6 Describe exclusion clauses, the approaches to their interpretation and the statutory protection available to consumers.

As a general rule, if the contract is a signed document, the exclusion clause will be effective unless fraud, misrepresentation or a statutory defence can be established.

In the case of an unsigned document, they must show:

• that the customer knew of and consented to the clause or that a reasonable person would have expected to find such a clause in that type of document;
• that reasonable steps were taken to give notice of the term; or
• if the terms have not been brought to the notice of the customer that they can be implied by trade usage or custom.

1. Courts traditionally interpreted exclusion clauses contra proferentem, or against the interests of the person seeking to rely on it. Why did the courts take this approach, and to what extent has it been displaced by alternative approaches?

Difficulty: Complex

Topic: Exclusion clauses and terms

Learning Outcome: LO 5.6 Describe exclusion clauses, the approaches to their interpretation and the statutory protection available to consumers.

Standard/Graduate Attribute AACSB: Reflective thinking

1. What is the effect of signing a contract?

Difficulty: Basic

Topic: Exclusion clauses and terms

Learning Outcome: LO 5.6 Describe exclusion clauses, the approaches to their interpretation and the statutory protection available to consumers.

Standard/Graduate Attribute AACSB: Application of knowledge